Why Most Of Your Credit Card Payment Only Covers Interest… And What To Do About It!

By Aaron Sarentino Reviewed by Nima Vahdat Updated May 29, 2024
Why Most Of Your Credit Card Payment Only Covers Interest… And What To Do About It!

Compound interest is why most of your credit card payment goes towards interest, yet most people don’t know how it works!

Do you ever wonder why, despite making regular payments on your credit card, the balance doesn’t seem to budge? 

It’s a frustrating reality for many Americans that most of their credit card payment only covers the interest. 


  • Making only the minimum payment on your credit card can lead to a cycle of debt.
  • Compound interest causes your debt to grow exponentially over time.
  • Debt relief options like debt consolidation can help you take control of your finances and pay off your debt faster. 

How Credit Card Issuers Determine Interest Rates

Credit card issuers determine interest rates primarily based on the prime rate, which is influenced by a benchmark rate called the “federal funds rate” and prevailing economic conditions. 

Most credit cards have a variable APR tied to the prime rate, with an additional margin added by the issuer. 

So, if the prime rate is 5%, and your credit card charges the prime rate plus 15%, your APR is 20%.

Your individual margin depends on factors like your credit score and borrowing history, with lower-risk borrowers receiving lower margins and vice versa.

How Compound Interest Works

When you maintain a balance on your credit cards, you’re subject to interest charges based on the amount you owe. 

For instance, if your balance is $2,000, you’ll pay interest calculated on that amount. 

However, if your balance increases to $10,000, your interest payment will be calculated based on the larger amount.

Each time you make a purchase, it contributes to the balance on which you’ll pay interest. 

But it’s not solely your purchases that cause this balance to increase. Compound interest also plays a significant role in this growth.

Compound interest is the culprit behind the phenomenon of most of your credit card payment going towards interest. 

Unlike simple interest, which is calculated only on the principal amount, compound interest is calculated on both the principal and the accumulated interest. This means that as your debt grows, so does the amount of interest you owe. 

Over time, compound interest can turn a manageable debt into an overwhelming financial burden. 

The APR On Your Credit Card Doesn’t Give You The Full Picture

When you receive your credit card statement, you may notice an Annual Percentage Rate (APR) listed as the interest rate. 

However, this rate doesn’t tell the whole story. 

Credit card interest is typically compounded daily, which means that the actual amount of interest you owe can be much higher than the APR suggests.

Debt Relief For Unmanageable Credit Card Debt

If you find yourself trapped in a cycle of debt where most of your payment goes towards interest, it may be time to consider debt relief options. 

Debt consolidation loans involve combining multiple debts into a single loan with a lower interest rate, making it easier to manage and pay off your debt.

Debt settlement is another option for people who don’t qualify for consolidation loans.. 

Bankruptcy is another option that you can consider when you’re stuck in debt but it should be a last resort. This is because filing for bankruptcy comes with lifelong consequences and can severely impact your credit score. 

Four Ways To Avoid Accumulating Credit Card Interest 

Pay More Than the Minimum

The minimum payment represents the lowest required amount you must pay each month to avoid penalties and additional fees. 

Making only the minimum payment on your credit card may seem convenient, but it keeps you trapped in a cycle of debt. 

By paying more than the minimum each month, you not only reduce the principal balance but also minimize the amount of interest that accrues over time. 

This approach helps you pay off your debt faster and saves you money on interest charges in the long run.

Use A Balance Transfer Card

If you’re struggling with high-interest credit card debt, a balance transfer can be a helpful strategy. 

Look for credit card offers with lower interest rates or promotional 0% APR offers for balance transfers. 

By transferring your existing balance to a card with a lower interest rate, you can reduce the amount of interest you pay each month, allowing you to pay off your debt more efficiently. 

Just be sure to read the fine print and understand any fees or terms associated with the balance transfer.

Negotiate With Your Credit Card Company

Don’t be afraid to reach out to your credit card company and negotiate for better terms. 

Whether it’s asking for a lower interest rate or requesting a more favorable repayment plan, your credit card issuer may be willing to work with you to help you pay off your debt. 

Be prepared to explain your financial situation and provide evidence of your ability to make consistent payments. 

While not guaranteed, negotiating with your credit card company can potentially save you money on interest and make your debt more manageable.

Create A Budget And Stick to It

One of the most effective ways to avoid credit card interest is to create a realistic budget and stick to it. 

Evaluate your monthly expenses and identify areas where you can cut back or eliminate unnecessary spending. 

By living within your means and prioritizing debt repayment in your budget, you can free up more money to put towards paying off your credit card debt. 

Consistently following a budget helps you stay on track with your financial goals and avoid accumulating more debt in the future.

Why Am I Being Charged Interest On My Credit Card After Paying It Off? 

If you’ve cleared your credit card balance but notice an interest charge on your monthly statement, the Consumer Financial Protection Bureau (CFPB) explains that this might be due to a concept known as “residual interest.” 

This charge can come as a surprise when you’ve been carrying a balance, as your card issuer may continue to charge interest from the time your bill was issued until they receive your payment.

Final Thoughts On Why Most Of Your Credit Card Payment Only Covers Interest

It’s frustrating to see most of your credit card payment disappear towards interest, but it doesn’t have to be that way. 

By understanding how compound interest works and exploring debt relief options like debt consolidation, you can take control of your finances and work towards a debt-free future.

If you’re struggling with credit card debt and feeling overwhelmed by high-interest payments, we can help.

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!


Aaron Sarentino

Aaron oversees executive, administrative and management functions for the firm. Aaron has a Bachelors in Business Administration from Pepperdine University. He is responsible for helping customers at every stage of the debt settlement process and focused on building loyalty to ensure long-term client retention by addressing customer issues. Aaron plays a pivotal role in the upliftment of the Americor team to ensure the best possible customer experience for clients.